Bull Market Lothario

By

Bill Alpert

Updated Feb. 19, 2001 12:01 a.m. ET

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T he bull market made winners of many Americans. While some spent their winnings on SUVs and Sub-Zero fridges, hedge-fund manager Norman Zadeh put his profits toward a Hugh Hefner lifestyle, complete with a harem of hotties and his own skin magazine, Perfect 10. Zadeh brings a unique selling proposition to the adult-entertainment business: He refuses to use pinup girls who scar themselves with surgical breast enhancements.

This attempt to raise standards in the smut industry flows from the same high-mindedness, says Zadeh, that inspired his United States Trading Championship -- a series of contests to test the prowess of financial traders, which Barron's covered extensively a decade ago. Zadeh's a crusader, not only against boob jobs, but also against excessive government debt and Internet pirating of his magazine's nudie pictures.

The son of a world-famous mathematician, Zadeh spent much of his childhood trying to impress his father, Lotfi. At three, he tried to count to a million, recalls sister Stella. At 17, Norm was reviewing drafts of math articles for his dad. He got his Ph.D. at 22.

After scraping along as a teacher and professional gambler, Zadeh finally scored big in the stock market. But lately the market's cycled down and he admits he's nervous about his spending. At yearend, Zadeh, now 50, cut back Perfect 10's budget and reduced spending on his girlfriends.

Investment success has long supplied second acts to Americans who failed in their first endeavors. During Norm's youth, his father, a professor at the University of California at Berkeley, busied himself inventing the field of "fuzzy sets," a kind of math that tries to approximate the imprecision of the human mind. "My husband meant well," says Norm's mother, Fay, "but he couldn't give his son the affection that a child expected. Therefore Norman has insecurities."

Apart from some temporary teaching appointments, Zadeh's academic career went nowhere. His lectures were too clear, he claims, adding that other professors thought him dumb, because they could understand what he said. Zadeh also tried his hand at research, in IBM's upstate New York labs. But that was a lonely place, he says, with no good-looking women.

All the while, he hustled backgammon and poker. In New York, he'd play Wall Street executives. In California, he'd play showbiz folks and drug dealers. But while he could figure poker odds, he couldn't figure out why his love relationships didn't last. Maybe he didn't perform well in bed, he speculated. Or maybe he just met too many women who looked better with their clothes on than off.

In 1983, he finally gained some traction with a venture he at first called the United States Trading Championship, and later, Money Manager Verified Ratings. Zadeh invited investment amateurs and professionals to compete for the best trading record over a designated stretch of time. Through a newsletter, and coverage in publications like Barron's, Zadeh's contests gave the public its first measure of money managers who didn't work in the mutual-fund industry. Long before hedge funds became a staple subject of the financial pages, Zadeh gave publicity to the likes of Paul Tudor Jones and Mark Strome.

Zadeh only published the performance of winners, claiming he feared the lawsuits of sore losers. Even with that censored reporting, Zadeh's contest found relatively few investors who could string together a decent long-term record. Many contestants lost money. Some, like Los Angeles trader Cedd Moses, showed spectacularly volatile results.

Zadeh's contest didn't make him as wealthy as his contestants were -- entry fees added up to just a couple of hundred thousand dollars a year. So he registered as a broker and investment adviser, and in 1992 he started some hedge funds with a partner. In the next five years, according to documents at the Securities and Exchange Commission, the partners raised at least $159 million from some 400 investors.

In the mid-'Nineties, the SEC began investigating Zadeh's firm, which earned commissions for raising money on behalf of trading contestants like Strome and Moses. SEC investigators looked for bribes, recalls Zadeh indignantly. Ultimately, the commission alleged only some recordkeeping breaches and excessively broad marketing of his hedge funds' private offerings. Without admitting to the allegations, Zadeh and his business paid $300,000 in penalties. Today, Zadeh grumbles, the SEC hasn't stopped Websites like IPOnet from marketing private offerings online.

With about $130 million now under management, Zadeh is earning a lot more than he did playing backgammon. Indeed, he claims he's averaged a 29% return since 1994. And when he split with his hedge-fund partner several years ago, his legal papers mentioned "millions of dollars" in payouts and hundreds of thousands in expense reimbursement. Zadeh bought a Beverly Hills mansion in 1992 for $1.7 million and a condo on Florida's Williams Island for $1.3 million.

When Zadeh began scoring on Wall Street, he also began Perfect 10, to champion the "natural look." By the standards of a post-politically-correct society, Zadeh sees himself as a feminist. "I'm supportive of women who want to make something of themselves," he says. "I'm not lily white, but I treat women better than Hugh Hefner and Bob Guccione."

His models have parlayed their Perfect 10 exposure into Playboy and Penthouse centerfolds and Page 3 photos in the London Sun. They've made it onto trash TV shows like Battle Dome , Jenny Jones and The X-Show . In addition, viewers of Temptation Island can hiss as Perfect 10 girl Vanessa Norris tries to steal Billy from his girl Mandy.

"A lot of girls want to show off," says Zadeh. "They know their bodies are hot. They appreciate the real-breast requirement."

While giving him so many opportunities to champion virtue, Zadeh confides that Perfect 10 is also "the best way imaginable to meet girls." Hugh Hefner may go clubbing with his seven girlfriends; Zadeh takes his ladies to The Four Seasons. Friends and family extol Zadeh's generosity: big tips for waiters; diamonds and Mercedes for the girlfriends; $300,000 for Stanford University. He even welcomed back Temptation Island gal Vanessa, despite her 1997 sexual harassment suit against him (subsequently dropped) complaining that he demanded that she "lap dance and perform other activities of a perverse and demeaning nature."

"I think Norman is a lonely man," laments his mother, "so he surrounds himself with these hangers-on." She wishes he'd settle down and marry but says that he worries about gold diggers.

Some of Zadeh's girls have been quick to desert him. He is still sad that his favorite Perfect 10 girl, Lexie Karlsen, jilted him for a producer of The X-Show , which features lots of scantily clad women.

For all the excitement, Perfect 10 is basically a trophy of the stock market because, as Zadeh readily admits, the magazine loses money. In December, after several months of bad trading, Zadeh decided he would publish fewer issues of the magazine this year. To keep partying on, Zadeh says, he has to improve on his recent trading results.

Zadeh realizes that it's his trading-generated generosity that's finally earned him the respect of his mathematician father. What happens to that status -- not to mention the Perfect 10 lifestyle -- if Norman's hot hand was really that of the bull market?

Even Zadeh doesn't sound sure. "I was fortunate to start in an up market," Zadeh admits. "And now, I don't think we're in an up market."

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